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Msg  67425 of 67728  at  5/29/2020 9:54:45 AM  by

carswell


The Launch Pad


Daily market commentary
The Launch Pad
May 29, 2020
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Today

It’s the last trading day of the month, and futures are slightly lower, but overall, it’s been a solid month of gains. Month to date the S&P is up over 4% and the TSX is up 3.3%. Stocks in Europe slipped and markets in Asia were mixed as tensions between the U.S. and China continue to simmer. U.S. consumer spending data for April came out this morning worse than expected as well. Compensation of employees paid out by businesses also collapsed. It fell 7.9% from a year earlier the most in 60 years of data.

Given the decent gains this week, it’s not surprising to see equity investors ending the week on a cautious note as we wait for Trump’s announcement on China. Trump looks set to sign a measure that would punish Chinese officials for imprisoning Muslims in internment camps and he's also looking to rebuke Beijing over its crackdown in Hong Kong.

Geopolitical tensions aren’t the only ones grabbing headlines. Tensions withing the U.S. are also elevated as Minneapolis burns. On a third night of anger at the killing of George Floyd, protesters set several buildings alight, including a police station.

The war of tweets continues. Twitter hid a tweet from President Donald Trump this morning, accusing him of breaking its rules by “glorifying violence” in a message that said looters at protests in Minneapolis would be shot. This decision is sure to rile up the President, given his previous temper tantrum and executive order to remove a layer of legal protection for social media networks. Going after twitter seems a little to us like shooting yourself in the foot just before the big (presidential) race.

Bonds are up slightly but yields remain locked in their tight 6-week range. Canadian shorter-term yields remain locked to the low end of their range, still well below March levels. While the longer end (30 years) continues to fade the bounce off the March lows. Since mid-April, longer-term bond yields have gradually been grinding lower in Canada, while U.S. long bond yields have risen in May.

Interestingly, despite weaker markets this morning, the U.S. dollar is seeing broad based weakness on the worse than expected data prints. Euro’s appear to be the winner outperforming all majors except for their northern partners in crime (Norway, Sweden).

Jerome Powell is set to address yield-curve control and other ammo still available to the Fed when he takes part in a virtual discussion with former Vice Chairman Alan Blinder today. The latest weekly balance sheet update also showed the Fed’s ETF holdings increased to $2.98 billion, up from $1.8 billion last week. The emergency lending program was designed to provide a backstop to large corporate borrowers amid the pandemic.


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Company news

Chevron announced this week that they would be cutting 10-15% of their workforce. This cut is bigger than those already seen by oil service companies Schlumberger and Haliburton. Lockheed Martin has been able to cut costs on the F-35 Fighter Jets that they are making for the Pentagon by over 7%. The less encouraging aspect is that operating and maintaining the fleet for the next 66 years has rise by almost 8% to $1.2tt. The $29bb loan fund for U.S. airlines remains untapped and only American Airlines has signaled that they intend to draw on the program. Southwest, United and Delta all said they are going to wait until the fall to decide if they want to access the program. BRP, the Sea-Doo maker is rushing to get their manufacturing facilities up and running as demand is surging with the lockdown easing. They have seen sales rise 35% in the first three weeks of May.

Commodities

Oil prices continue to tumble as relations between the U.S. and China turned increasingly sourer; at the time of writing, NYM WTI Crude Futures were down -1.9% t US$33.06/bbl while ICE Brent Crude Futures were down -1.7% to US$34.70/bbl. Saudi Aramco is poised to increase its Arab Light crude selling price by US$4.13/bbl for July, according to a Bloomberg survey of refiners and traders. China is cutting its exports of fuel as demand in the region rebounds.

Gold prices edged higher by +60 bps to US$1,728.73/oz. ETF’s are set to close May with a sixth monthly increase to their gold holdings, making this the longest run since 2017. Asset holdings now sit above 3,100 tons. Perhaps this steady buying explains why prices have held so well above US$1,700/oz.


Fixed income and economics

Yesterday the U.S. reported a GDP update and today it’s our turn, with StatsCan reporting that our economy shrank by -8.2% in the first quarter. That was better than the -10.0% consensus composed by a survey of fifteen economists (Barclays on the bullish side with a -3.9% prediction; really?). Still, it’s a steep drop from the +0.6% pace in Q4 2019 and the single worst quarter since the depths of the global financial crisis. The latter troughed at -8.75% a decade ago and almost seems assured of being surpassed when we get the Q2 print later this summer (StatsCan officials already released preliminary April figures which showed an -11% plunge for the month). Within the details, every major category posted losses with consumption (-9.0%), government purchases (-3.85), capital investment (-1.4%) and exports (-11.3%) down by the most in years. If there is a positive to be had in all this, it’s that the print is lagged by two months so markets were already expecting the big drop. As such, bond benchmarks are little changed while the loonie (having a strong two penny rally this week) barely weakened.

Chart of the day

Markets

Quote of the day

Art is anything you can get away with.

- Marshall McLuhan



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